Income Tax Appellate Tribunal - Mumbai
Indian Hotels Company Ltd. vs Deputy Commissioner Of Income Tax on 2 August, 1999
Equivalent citations: (2000)68TTJ(MUM)706
ORDER
Deduction under section 80HHC Catch Note:
The assessee-company, a hotelier, returned a total income of Rs. 1,70,08,000 for the year under consideration--The assessee- company, besides running a chain of hotels, also has a flight kitchen unit which supplies food to various airlines, both domestic as well as international--With regard to its supplies to foreign airlines, assessee had claimed deduction under section 80HHC of the Act to the tune of Rs. 7.32 lakhs--While finalising the assessment, the total assessed income stood enhanced on account of various additions and disallowances--Accordingly, the assessing officer revised the claim under section 80HHC to Rs. 15 lakhs and finally the total assessed income stood at Rs. 4,29,44,560--The Commissioner invoked section 263 on the ground that the assessing officer has erred in allowing the deduction under section 80HHC of Rs. 15,00,000 without verifying the fact that whatever sales made to airlines are within India and cannot be considered as export sales--Accordingly, the Commissioner set aside this issue with a direction to the assessing officer to consider the allowance according to the provisions of law including the definition of the term "export turnover" and "export out of India" in the Explanation to that section--Not proper--The assessing officer did consider the issue with proper application of mind and mere lack of discussion of the issue in his order by the assessing officer, would not render the order to be erroneous, therefore, on facts of the case the Commissioner was not justified in holding the order of the assessing officer to be erroneous and prejudicial to the interest of the revenue.
Held:
The Commissioner treated the order of the assessing officer to be erroneous and prejudicial to the interest of the revenue on account of three reasons. One of them was that in assessment year 1988-89, on remand by the Commissioner (Appeals), assessing officer had denied the deduction under section 80HHC to the assessee. However, it is on record that in appeal against the said order, Commissioner (Appeals) allowed the deduction. Hence that reason no longer survives to consider the present assessment order to be erroneous. The remaining two reasons, viz. (a) that the assessing officer allowed the relief without any discussion, and (b) that the assessing officer did not consider the issue in all its remifications, can be considered together.
The assessing officer did consider the issue in all its earnestness. There are three strong indicators which have led to arrive at this conclusion. Firstly, there was the audit report under section 80HHC(4) in the prescribed Form 10 CCAC. The said report, besides containing usual attestation and computation of deduction by the auditors, also contained two notes in the remarks column. The report as such may be termed merely a technical compliance, however, Note No. 2 in the remarks column is not a usual note. It pertains to receipt of payment in convertible foreign exchange and is peculiar to the facts of the case. It is difficult to presume, rather unfair to presume that the assessing officer must have overlooked this important material on record. In fact, there is a positive indication to infer that the assessing officer has considered the same and that leads to the second indicator.
Note No. 1 in the remarks column of the audit report is to the effect that the claim is subject to modification of income under the head "profits and gains of business" on completion of assessment. As per the audit report, the claim of deduction was for Rs. 7.32 lakhs. However, while finalising the assessment, assessing officer granted deduction of Rs. 15 lakhs on account of higher assessed income. Not only that, as a matter of facts, assessee was entitled to a higher deduction but the assessing officer restricted it to the extent of the reserve created and granted deduction of Rs. 15 lakhs. Thus, this is a strong indication to show that the assessing officer considered the entire provision while granting deduction, and the enhanced deduction being in pursuance of the aforesaid Note No.1, it can be inferred that the assessing officer must have considered Note No. 2 as well, which has a bearing on the merits of the deduction. And this is not the only aspect of the merit of the deduction which the assessing officer considered. Assessing officer has considered all the aspects as to whether the assessee merits deduction or not.
Assessee had claimed a deduction of Rs. 38,39,741 on account of sales-tax payable on its sales effected by the flight kitchen. However, the assessee had not accepted this liability inasmuch as that it had filed a writ petition against the very chargeability of sales-tax on sales through the flight kitchen on the ground that these were export sales and no sales-tax was payable on exports. In the present appeal, Tribunal is not concerned about the merits or demerits of the issue. But the point emphasising is that the assessing officer has discussed this issue in these very words in his assessment order. Thus it is highly improbable that assessing officer must have allowed the deduction under section 80HHC in a mechanical manner. If the two issues, i.e. (a) sales-tax on flight kitchen sales, and (b) section 80HHC deduction on the same sales would have figured in separate assessment years, then perhaps, there would have been some scope for arguing that the assessing officer could not have been expected to consider another issue while dealing with one. But here, both the issues figure in the same assessment year, hence it is quite unfair to the assessing officer to say that he did not consider the issue of deduction under section 80HHC in all its remifications.
Thus, above three indicators, are strong enough to conclude that the assessing officer did consider the issue with proper application of mind. It is true that he has not discussed it in his order. But in the light of what the Tribunal has discussed earlier, mere lack of discussion of the issue in his order by the assessing officer, would not render the order to be erroneous. Moreover, the Commissioner himself has not shown as to how the granting of deduction under section 80HHC is erroneous. This was exactly the situation in the case of Gabriel where the Commissioner could not, even after initiating proceedings for revision and hearing the assessee, say that the expenditure was not revenue expenditure but an expenditure of capital nature. Similarly, in this case also the Commissioner, having heard the assessee, has not been able to say that the deduction is not in accordance with law.
Thus, on the facts and in the circumstances of the case, the Commissioner was not justified in holding the order of the assessing officer to be erroneous and prejudicial to the interest of the revenue . Accordingly, the order of the Commissioner passed under section 263 of the Income Tax Act, 1961 is quashed.
Case Law Analysis:
Commissioner v. Gabriel India Ltd. (1993) 203 ITR 108 (Bom) relied on.
Application:
Also to current assessment year.
Decision:
In favour of Assessee.
Income Tax Act 1961 s.263 ORDER Pradeep Parikh, A.M. The assessee is in appeal before us against the order of the learned Commissioner, dated 24-3-1992, made under section 263 of the Income Tax Act, 1961 (hereinafter referred to as `the Act'), for assessment year 1987-88. Following two grounds have been raised in the appeal :
(1) On the facts and in the circumstances of the case, the learned Commissioner, City-I, Mumbai, has erred in assuming jurisdiction under section 263 when the order passed by the Deputy Commissioner was not erroneous insofar as it was prejudicial to the interest of revenue.
(2) On the facts and in the circumstances of the case, the learned Commissioner (Appeals) has erred in holding that the Deputy Commissioner had not duly considered whether sale of food to foreign airlines could be considered as export turnover for the purpose of relief under section 80HHC."
The assessee-company, a hotelier, returned a total income of Rs. 1,70,08,000 for the year under consideration. The assessee- company, besides running a chain of hotels, also has a flight kitchen unit which supplies food to various airlines, both domestic as well as international. With regard to its supplies to foreign airlines, assessee had claimed deduction under section 80HHC of the Act to the tune of Rs. 7.32 lacs. While finalising the assessment, the total assessed income stood enhanced on account of various additions and disallowances. Accordingly, the assessing officer revised the claim under section 80HHC to Rs. 15 lacs and finally the total assessed income stood at Rs. 4,29,44,560.
2. The Commissioner issued notice under section 263 seeking explanation from the assessee as to why the assessment order passed under section 143(3) should not be set aside as being erroneous and prejudicial to the interests of the revenue on the following grounds :
(1) The assessing officer has erred in allowing the deduction under section 80HHC of Rs. 15,00,000 without verifying the fact that whatever sales made to airlines are within India and cannot be considered as export sales.
(2) Deduction on account of incremental liability in respect of purchase of a capital asset is wrongly allowed as a revenue expenditure.
3. So far as the second issue was concerned, the Commissioner concluded that there was no question of any revision. As regards the first issue, the observations of the Commissioner can be summarised as below :
(a) Assessing officer allowed the relief of Rs. 15 lacs without any discussion in the assessment order.
(b) In assessment year 1988-89, identical issue was considered by the appellate authority and the same was sent back to the assessing officer for reconsideration. On reconsideration, the assessing officer had denied the deduction to the assessee.
(c) Since the issue had not been considered by the assessing officer in all its remifications, there was an error in the assessment order causing prejudice to the revenue .
Accordingly, the Commissioner set aside this issue with a direction to the assessing officer to consider the allowance according to the provisions of law including the definition of the term "export turnover" and "export out of India" in the Explanation to that section.
4. At the outset, Shri Dinesh Vyas, the learned counsel for the assessee, apprised us of the activities of the flight kitchen, which, it was submitted, was independent of the Taj Hotel run by the assessee-company. It was specifically emphasised that the assessee was not claiming any deduction on supplies made to domestic airlines, but it was claimed only in respect of supplies to the foreign airlines. In this connection Shri Vyas referred to the meaning of the term "export out of India" given in clause (aa) of the Explanation to section 80HHC. With regard to the "custom clearance" referred to in the said clause (aa), the learned counsel referred to the certificate issued by Superintendent of Customs. As regards the requirement about the sale proceeds to be in convertible foreign exchange, reliance was placed on the certificate issued by Hongkong Bank in the case of one of the airline customers.
5. Referring to the observation of the Commissioner that the assessing officer did not consider the issue, the learned counsel submitted that the Commissioner had no evidence to say so, In this connection it was further submitted that the auditors' certificate certifying the quantum of deduction was on record. Next, our attention was drawn to the issue relating to the unpaid sales-tax liability on flight kitchen dealt with by the assessing officer in his order. It was pointed out that the assessee had not accepted this liability on the ground that they were export sales and even a writ petition against the chargeability had been filed. The fact that, Shri Vyas contended, assessing officer has discussed this issue in his order, coupled with assessee's claim under section 80HHC amply shows that there was application of mind while granting deduction under section 80HHC. Application of mind is further proved by the fact that though assessee had claimed deduction of Rs. 7.32 lacs, assessing officer enhanced it to Rs. 15 lacs when the income was assessed at a higher figure. With regard to the denial of deduction in assessment year 1988-89, it was pointed out that the same has been subsequently allowed by the Commissioner (Appeals).
Thus, in the view of the learned counsel the observations of the learned Commissioner did not survive at all. He relied on the decisions in CIT v. Gabriel India Ltd. (1993) 203 ITR 108 (Bom), Hindustan Marketing & Advertising Co. Ltd. v. Income Tax Officer (1989) 28 ITD 231 (Del-Trib) and Nirfabrics Ltd. v. Dy. CIT (1994) 50 ITD 336 (Bom-Trib).
6. The learned Departmental Representative, referring to Explanation (aa), contended that whether custom clearance as contemplated in the said explanation was there or not, was not clear from the certificate placed on record. It was submitted that the certificate did not clarify whether exports had taken place or not. Moreover, the assessing officer had not dealt with the issue whether supplies to foreign airlines constituted sales in India or not. Hence, all these unattended issues showed that more enquiry was required and thus there was lack of application of mind on the part of the assessing officer. With regard to the decision in the case of Gabriel India Ltd. (supra), it was submitted that in that case detailed explanation was given, whereas in the instant case no such explanation was given and hence Gabriel's decision had no application here. Moreover, in assessment year 1988-89, the matter was set aside twice which showed the issue required thorough investigation. For his submissions, the learned Departmental Representative relied on the decisions in Vinay D. Valia v. Addl. Income Tax Officer (1988) 27 ITD 109 (Bom-Trib), Duggal & Co. v. CIT (1996) 220 ITR 456 (Del) and K.A. Ramaswarny Chettiar & Anr. v. CIT (1996) 220 ITR 657 (Mad).
7. In his reply, as regards the issue whether the supplies constituted exports or not, it was contended by the learned counsel that the certificate by the chartered accountant was very clear on the issue. As regards the reliance of the learned Departmental Representative on the decisions in (1988) 27 ITD 109 (Bom-Trib) (supra), it was submitted that the said decision was rendered before the decision in Gabriel (supra) and that the author of that decision had taken a different view after the decision in Gabriel. The decision in (1996) 220 ITR 657 (Mad) (supra) it was stated, was distinguishable on facts. Thus, it was urged that the order of the assessing officer was not erroneous and prejudicial to the interest of the revenue .
8. We have thoughtfully considered the submissions of the parties and the material placed before us. As mentioned earlier, the Commissioner treated the order of the assessing officer to be erroneous and prejudicial to the interest of the revenue on account of three reasons. One of them was that in assessment year 1988-89, on remand by the Commissioner (Appeals), assessing officer had denied the deduction under section 80HHC to the assessee. However, it is on record that in appeal against the said order, Commissioner (Appeals) allowed the deduction. Hence that reason no longer survives to consider the present assessment order to be erroneous. The remaining two reasons, viz. (a) that the assessing officer allowed the relief without any discussion, and (b) that the assessing officer did not consider the issue in all its remifications, can be considered together.
9. In this connection, we would wholly like to fall back upon the authoritative pronouncement of the Mumbai High Court in the case of CIT v. Gabriel India Ltd. (supra), because, in our opinion, the principles laid down in the said decision are on such facts and circumstances which are much akin to those obtaining in the present case. As per the said decision, an erroneous order is one which is not in accordance with law or which has been passed by the assessing officer without making any enquiry in undue haste. The point for consideration is, whether, in the present case, the assessing officer made any enquiry or not. In the case of Gabriel (supra), the assessing officer raised a specific query with regard to the expenditure in question and the assessee gave a detailed explanation in that regard by a letter in writing. In the present case, no doubt, there is nothing on record to suggest of a positive act of enquiry undertaken by the assessing officer. However, the term 'enquiry' does not merely mean an enquiry into an offence, or a judicial enquiry in its restricted sense or examining a witness. Its meaning is considerably wider. It also means consideration of evidence (Law Lexicon by P. Ramnatha Aiyar-1997-Edn.). Hence in the context of the present case, the issue boils down to whether the assessing officer duly considered the issue relating to deduction under section 80HHC or not.
10. In our opinion, the assessing officer did consider the issue in all its earnestness. There are three strong indicators which have led us to arrive at this conclusion. Firstly, there was the audit report under section 80HHC(4) in the prescribed Form 10 CCAC. The said report, besides containing usual attestation and computation of deduction by the auditors, also contained two notes in the remarks column. The report as such may be termed merely a technical compliance, however, note No. 2 in the remarks column is not a usual note. It pertains to receipt of payment in convertible foreign exchange and is peculiar to the facts of the case. It is difficult to presume, rather unfair to presume that the assessing officer must have overlooked this important material on record. In fact, there is a positive indication to infer that the assessing officer has considered the same and that leads us to the second indicator.
11. Note No. 1 in the remarks column of the audit report is to the effect that the claim is subject to modification of income under the head "profits and gains of business" on completion of assessment. As per the audit report, the claim of deduction was for Rs. 7.32 lacs. However, while finalising the assessment, assessing officer granted deduction of Rs. 15 lacs on account of higher assessed income. Not only that, as a matter of facts, assessee was entitled to a higher deduction but the assessing officer restricted it to the extent of the reserve created and granted deduction of Rs. 15 lacs. Thus, this is a strong indication to show that the assessing officer considered the entire provision while granting deduction, and the enhanced deduction being in pursuance of the aforesaid note No.1, it can be inferred that the assessing officer must have considered note No. 2 as well, which has a bearing on the merits of the deduction. And this is not the only aspect of the merit of the deduction which the assessing officer considered. In our view, assessing officer has considered all the aspects as to whether the assessee merits deduction or not. This is the third indicator which we proceed to discuss in the paras to follow.
12. Assessee had claimed a deduction of Rs. 38,39,741 on account of sales-tax payable on its sales effected by the flight kitchen. However, the assessee had not accepted this liability inasmuch as that it had filed a writ petition against the very chargeability of sales-tax on sales through the flight kitchen on the ground that these were export sales and no sales-tax was payable on exports. In the present appeal, we are not concerned about the merits or demerits of the issue. But the point we are emphasising is that the assessing officer has discussed this issue in these very words in his assessment order. Thus it is highly improbable that assessing officer must have allowed the deduction under section 80HHC in a mechanical manner. If the two issues, i.e. (a) sales-tax on flight kitchen sales, and (b) section 80HHC deduction on the same sales would have figured in separate assessment years, then perhaps, there would have been some scope for arguing that the assessing officer could not have been expected to consider another issue while dealing with one. But here, both the issues figure in the same assessment year, hence it is quite unfair to the assessing officer to say that he did not consider the issue of deduction under section 80HHC in all its remifications.
13. Thus, we have given above three indicators, which in our opinion, are strong enough to conclude that the assessing officer did consider the issue with proper application of mind. It is true that he has not discussed it in his order. But in the light of what we have discussed earlier, mere lack of discussion of the issue in his order by the assessing officer, would not render the order to be erroneous. Moreover, the Commissioner himself has not shown as to how the granting of deduction under section 80HHC is erroneous. This was exactly the situation in the case of Gabriel (supra) where the Commissioner could not, even after initiating proceedings for revision and hearing the assessee, say that the expenditure was not revenue expenditure but an expenditure of capital nature. Similarly, in this case also the Commissioner, having heard the assessee, has not been able to say that the deduction is not in accordance with law. In this connection, we would like to quote from the decision in Gabriel.
"So far as calling for the records and examining the same is concerned, undoubtedly, 'it is an administrative act, but on examination "to consider" or in other words, to form an opinion that the particular order is erroneous insofar as it is prejudicial to the interests of the revenue, is a quasi-judicial act because on this consideration or opinion the whole machinery of re-examination and reconsideration of an order of assessment, which has already been concluded and controversy which has been set at rest, is set again in motion. It is an important decision and the same cannot be based on the whims or caprice of the revising authority. There must be materials available from the records called for by the Commissioner. "
14. Thus, on the facts and in the circumstances of the case, we hold that the Commissioner was not justified in holding the order of the assessing officer to be erroneous and prejudicial to the interest of the revenue . Accordingly, the order of the Commissioner passed under section 263 of the Income Tax Act, 1961 is quashed.
15. In the result, the appeal of the assessee is allowed.